A core competency is a skill or a capability of a company that delivers the highest value for the customer compared to its other activities. The concept is related to value chain, as core competencies are a sub-category of the primary activities, depicting the most crucial processes. In addition, a process is considered a core competency if the activity delivers higher value compared to processes of the same category from its competitors.
A core competency usually features the following three characteristics:
- Challenging to be replicated by competitors because it is a result of an extensive learning period.
- Delivers unique value to the customers.
- Can be applied to the majority of products and markets of the company.
Use the Strategic Advantages of Core Competencies to Set Up a Strategy
Core competencies are an opposite approach to Porter’s five forces, which focus on the external environment as a key factor, which drives decisions. The core competency concept uses companies’ internal capabilities as drivers for strategic choices.
Knowing the core competencies of a company in a case interview will help you to understand:
- Where to focus in terms of introducing and developing new products, one dimension of the Ansoff Matrix.
- What processes to outsource.
- How to build a competitive edge in terms of cost or quality.
- How to create new markets or enter emerging high growth markets
Apple’s Approach (Example)
Apple's core competencies:
- Design: Life-style design
- Technology: Product differentiation through innovation
- Marketing:
- Viral marketing
- Superior brand with matching price and placement
- Secrecy about new products
Apple's focus on areas where it can deliver the best value has resulted in a set of very loyal customers, and it is unlikely to convince Apple customers to switch to a competitor's product.
Hence, it is crucial for a company to have a core competency and leverage this strength to be successful.
